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Curious Cat Kivans

Investing and Economics Blog

After World War II essentially the only significantly large industrial base was in the USA. The USA was emerging as a national power in the early 1900’s. The wake of World War I and World War II left a very odd situation. You had many formerly very rich countries that were devastated and one rich country that wasn’t. Devastation is not easy to overcome in even 20 years. So for a good 2 decades the USA got wealthier and wealthier even while other formerly rich countries were re-developing their countries rapidly.

This made the USA even richer as selling to all those around the world was pretty easy, just creating enough stuff was the hardest part. Almost none of the current emerging markets were doing much of anything economically. This resulted in the USA being able to live incredibly well and generate enormous wealth.

The main legacy of this is a huge benefit to the USA – enormous wealth and experience. However, it seems to have left people thinking the USA is just suppose to be enormously wealthy always no matter if we throw away hundreds of billions a year on a broken health care system, provide huge benefits to political donors (farmers or bankers or phone oligopolists or robbers of the public domain [preventing innovation through repressive, outdated “intellectual property” regimes]), spending many hundreds of billions yearly on military expenditures far beyond those of any other country… It doesn’t work that way.

You can waste huge amounts of economic benefit when you are the dominant economic power globally. And when you were as rich as the USA was in the 1950s and 1960s more and more people felt they deserved to be favored with economic gifts. So for a a few decades the USA used the excess wealth to pay off all sorts of special interests and still do very well economically. The only thing surprising is how long we have been able to keep this up.

It isn’t rational to base expectations on periods when we were granted economic wealth largely by virtue of the world industrial production, other than ours, being destroyed. This isn’t the only reason we were wealthy, we do many things very well (compared to other countries) entrepreneurship, less corruption (still way too much but less than average), from 1950 to about 1990 an equitable distribution of economic gains, until recently a good advanced education system, a brilliant system to turn science and engineering breakthroughs into economic profit (that in the last few decades other countries are starting to do, but they are still way behind)…

From 1970s until say the 2000s we could use our accumulated wealth to live off and allow huge inefficiencies to continue (lousy job of regulating banks, lousy job of subsidizing farming, lousy job of subsidizing lousy food [making it cheap to eat unhealthy food and expensive to eat healthy food], lousy job of controlling the costs of higher education, lousy job of getting people to realize they cannot expect to live far beyond most everyone else in the world just because they were born in the USA…
There are lots of problems that have to be fixed. Ignoring them the last 20-30 years means the problems are much more difficult today. The USA will not return to a state where we were enormously richer than nearly everyone else on the globe. The USA is still in a very privileged economic position. The main difference is that we can’t support all the special interest wastes we have been able to for the last few decades. If we try to we will fall quickly (within decades) economically.

We have to realize we haven’t been able to afford too spend nearly what we have been on health care, consumer spending, military spending… for decades. Nor accept the waste in giveaways to big political donors. We have been able to afford living beyond our means for decades due to the huge wealth we built up (and the lack of the ability of the rest of the world to compete with us as consumers – until the last 20 years).

Comparisons to the 1950-1970 period are unrealistic. The 1950-1970 period is one where the USA was tremendously rich compared to the rest of the world. That isn’t true now, and is not going to be true. From 1970-2000 we have the base, very high standard of living in the USA, plus a huge living beyond our means premium (that allowed all sorts of excess economic benefit).

Since 2000 on the eating into our build up capital has become extreme. Instead of dealing with issues (huge budget debt, broken health care system, huge military spending, broken criminal justice system…) we often just made things worse and then ate up more of our accumulated wealth to live even further beyond our means. And we chose policies that meant in many cases it was the richest that were given huge gains to let them spend the money we didn’t have (but that was just how we decided to allocate the spending of our accumulated wealth – you might not like that allocation but it isn’t really that significant in the long term economically who spent the money we didn’t have).

To return to a path where we improve our economic condition decade after decade instead of making it worse we need to do many things. But one of the first is to realize the issue is not that we can reallocate the wealth and have a 1960 lifestyle of wealth for everyone. We are not as rich as we were then. We probably never could have sustained that level (and certainly never could have sustained it compared to other countries). We have wasted a large portion of where would could have been today through bad policies and practices. But it is not that we can today say, ok, lets stop giving huge benefits to a few hundred thousand people that paid congress well to have special favors and now we can have everything like 1965.

I would not do silly things like give huge tax breaks to trust fund babies, but those kinds of changes won’t amount to much. You have to fix the health care system. We show no interest in doing so. You have to either tax people to pay for the military spending or reduce it. We don’t seem interested in doing so. We have to start basing economic policy on good sense instead of who gives the most cash to politicians that we then elect. Again we show over and over, when we elect politicians that favor their donors over the interest of the county, that we don’t seem interested in reducing corruption. We can’t expect the country not to be damaged if we don’t address the causes of the problems.

We had it very easy in the 1950s and 1960s. We pretty much could have been completely incompetent idiots and lived economically very well. We were not completely incompetent. We even did some things very well. But it is not surprising that we got lazier and less willing to make the difficult choices when we were able to avoid doing so and live incredibly well. Now we are used to having great wealth while being fairly sloppy in our operating the economic system. We could afford to have bozos allow horrible banking practices and just bail them out (see the S&L crisis in the 1980s). Now we do the same thing and it is much harder to just go find the cash to pay off our bad decisions.

I don’t see us being close to making the necessary changes. Having demonstrations and discussions is actually a positive step. But it is a pretty minor one. As long as we continue voting in the same bozos we have been that just dole out favors at the expense of the country (either because they are fools, corrupt, or just don’t really care – I am not really sure which though I believe a combination of don’t care and being corrupt is most likely situation) we are in trouble. We could afford to do that and live very well for decades. And we can afford to still live very well for many more decades by living off our accumulated wealth.

We can actually continue to do a lot of that lame stuff now (living beyond our means, allow finance and health care special interests to syphon off wealth from the economy, enormous military spending) we just can’t afford it at the current levels… I would favor reducing special interest favors, military spending and living beyond our means more and leave more for basic health care for everyone, investing in science and engineering, do everything we can to maintain our entrepreneurial spirit (the benefit to us having Google, Amazon, Intel, Cisco… here, even as global companies is huge – losing that would make everything else we have to do much much much harder), maintain our basic infrastructure (which we are neglecting now and it is getting critical in the next decade)…

But we just need to decide what we want to do. The current plan seems to be to increase special interest support (financial industry, health care system, farmers, tax breaks for the wealthy…), increase living beyond our means, don’t address the broken health care system, maybe decrease military spending some tiny little bit, don’t have basic health care, ignore our basic infrastructure… That is going to be a problem.

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